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Institutional flexibility in tax law and enforcement

Author

Listed:
  • Carbonara, Emanuela
  • Curry, Philip A.
  • Hill, Claire A.
  • Parisi, Francesco

Abstract

This paper examines how governments can optimally audit to discourage tax avoidance. We assume that an accounting firm designs and promotes strategies for tax avoidance. This firm adapts the quality and diversity of these strategies in response to shifts in government policies. We investigate when it is more effective to approve some methods while cracking down on others, rather than targeting all tax-avoidance activities uniformly. We find that selectively enforcing against specific methods can be optimal. This approach not only reduces the quality but also limits the variety of tax avoidance activities in the market and positively impacts the government’s tax revenue collection. Our analysis provides practical insights, linking the costs of auditing with the interaction between enforcement, the quality of tax avoidance methods, and tax revenue outcomes.

Suggested Citation

  • Carbonara, Emanuela & Curry, Philip A. & Hill, Claire A. & Parisi, Francesco, 2024. "Institutional flexibility in tax law and enforcement," International Review of Law and Economics, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:irlaec:v:79:y:2024:i:c:s0144818824000358
    DOI: 10.1016/j.irle.2024.106215
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax avoidance; Tax policy; Loopholes; Flexibility in enforcement; Selective auditing;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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